Pranab's parting gift disappoints markets

The central bank increased the limit on foreign investment in government bonds by $5 billion to $20 billion, increased the external commercial borrowing limit for manufacturing and infrastructure firms by $10 billion to $30 billion and allowed qualified institutional investment in mutual funds that hold 25 per cent of their assets in the infrastructure sector.

Further, it allowed FIIs to buy bonds with a residual maturity of three years compared to an earlier five, subject to a $10-billion ceiling.

Pranab's parting gift disappoints markets

In a separate set of announcements later, the government decided to reduce the lock-in period for foreign investment in some long-term infrastructure bonds to one year from three.

This means companies in the manufacturing and infrastructure sectors can raise funds via ECBs to repay rupee debt within the ceiling of $10 billion.

Market participants said the measures were unlikely to spur major inflows into the bond market, as critical issues such as the rising subsidy burden and the introduction of the General Anti-Avoidance Rule in 2013 had been left unresolved.